Relaxed conditions for utilising the Danish 26 pct. tax scheme

From 1 January 2017, the conditions for utilising the Danish 26 pct. tax scheme will be relaxed slightly, allowing individuals taxed according to the scheme to adopt a more flexible work pattern.

On 19 December 2016, the Danish Parliament adopted a bill amending the special Danish 26 pct. tax scheme for inbound expatriates.

Background
Due to the high rates of individual income taxes in Denmark compared to many other countries, a special Danish tax scheme exist in order for Danish businesses to attract skilled labour from abroad.

This scheme allows employees recruited abroad to relocate to Denmark and be taxed in Denmark on cash salary and certain benefits in kind from a Danish employer at a total flat rate of 31.92 pct. (8 pct. gross tax and 26 pct. tax on the remaining amount).

Conditions for utilising the scheme
Several conditions apply in order for an individual to be taxed according to the scheme. Most notably, a minimum salary requirement exist. This is adjusted yearly. From 2017, the monthly salary according to the employment contract must amount to at least DKK 63,700 after deduction of mandatory social security contributions.

The relaxed condition
Another condition for utilising the special Danish 26 pct. tax scheme affects individuals who are resident in Denmark for tax purposes according to a double tax treaty between Denmark and another country, when the individual works abroad under such conditions that the country of work will be allowed to tax the salary or part hereof.

The purpose of this condition is to ensure a correlation between taxation according to the special Danish 26 pct. tax scheme and work performed in Denmark.

However, individuals employed in Danish entities of international groups will often find that the condition prohibits them from participating in business trips to group entities in other countries. This was not the intention.

For that reason, the condition has been relaxed with effect from 1 January 2017. Henceforth, a maximum of 30 days of work abroad during a calendar year - under such conditions that the country of work can tax a corresponding part of the salary - will be allowed without disqualifying the employee from using the Danish 26 pct. tax scheme.

Should you require assistance, BDO can help you or your business in any matters related to the Danish 26 pct. tax scheme for inbound expatriates.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.

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